To Your (Financial) Health V
Nowadays people tend to brag about their physical well-being, and take great pride in their mental and spiritual health.
But ask them about their financial health and well-being, and, more often than not, the inquiry is met with an awkward pause, a constipated silence, and muttering, mumbling, ultimately defensive: Well, I meant to take care of it. I was going to take care of it. I intended to take care of it. I mean, I’ve only got six credit cards, and only four of them are maxed out.
I remain, professionally and personally, amazed and all but dumbfounded by this revelation: How can someone take such pleasure at being able to do five hundred sit-ups or ab crunches and yet not know they are at their limit on the majority of their credit cards? How can someone be at peace internally when they know their credit rating is just short of being an undeniable disaster, and their finances resemble the Titanic as it is sinking?
Fortunately, an increasing number of people want to do something about the situation, the predictament they find themselves in, and they want to do it right and proper.
Previously I presented instructions to you to spend between ten and twenty dollars on the purchase of a three-ring notebook with at least a three-inch spine, a package of indexed section dividers, a package of notebook paper, and a black Sharpie marker. All of which will be used to eliminate the debt you presently hold, and to bring your financial health back to where it should be.
Once you have these items the first thing to do is to take out a sheet of paper and write at the top of it, in large letters about an inch high, “Index”. Then, directly below this, aligned left, write “Debt: 1.0″.
Next, take out one of the section dividers and mark it in the same manner: “Debt: 1.0″.
Put the index or table of contents page into the notebook, followed by the section divider previously marked.
After this is done take out another sheet of paper and at the top of it write: “Debt (Liabilities)”.
Then, aligned left, list every cent you owe. Mortgage, car payment, student loans, credit cards, department store cards, gas cards, etc. If you owe your cousin Morrie ten dollars from a wedding reception cash bar ten years ago list that. I strongly suggest a format as follows:
Credit Cards: $25,000.00
Car loan: $15,000.00
Department store credit cards: $7,500.00
Once you have listed all your debt, total it at the bottom of the page, aligned right.
Next, take a few minutes to review how much it is you owe. I can assure you it will prove to be a very sobering experience, as well as a very unsettling one because it is very likely that to this point in your life you have not actually understood or known how much debt it is you actually have.
Which is why so many people are in such poor financial health. They may count calories but they don’t count pennies, and they should.
When you have completed this page and totaled the amounts, put it inside the notebook, behind the first section divider.
Next, take out another sheet of paper and write at the top of it, “Debt: Liabilities”.
Then, aligned left, start copying what you previously wrote on the previous page. But as you do so break the debts down to specifics. For example, you hold about $25,000.00 in credit card debt. List this debt as follows:
Credit card debt:
And so on.
Once you have itemized your debt again total it at the bottom of the page, aligned right.
Again, take a few minutes and review your debt, this time more specifically. Again, the experience of reviewing this information once more in black and white should prove sobering. It should. After all, you must know where your money goes.
Put this page in the notebook behind the previous page.
Take another sheet of paper and label it as you did the previous page: “Debt: Liabilities”. Itemize your debts as you just did. But as you do so add another column of information, which should look like this:
Credit cards: $25,000.00
Discover: $7,500.00 divided by 10 years = $750.00 per year.
This time, though, when you get to the bottom and prepare to total the amount total the amount based on payment over ten years. Or twenty years. Or thirty years. However many years you decide you will need to realistically pay off your debt. This is the amount you must pay until your debt is retired.
Shocking, I imagine. Appalling, no doubt. But remember an important fact through all of this: You made the choice to take on this debt. Now you must pay for it.
But before you set to tackling this task, a few more things.
The first thing you must do is put this page into the notebook, following the other pages.
The next thing you will do is take another sheet of paper out and label it just as you did the others.
This time, though, you will not list your mortage, car payment, student loans, etc. This time the only thing you will list is your credit card debt. This time you will do with your debt what you did previously: You will itemize the debt to a specific source. The resulting effort should look something like:
$25,000.00 divided by 10 years divided by 12 months = $208.00 per month.
Two hundred and eight dollars a month.
You can afford that each month, right?
Apparently not. Obviously not, because if you could you would not be in the situation you find yourself in.
Now this monthly amount, incidentially, is based on certain assumptions.
Assumption number two: The total debt owed is stagnant, a fixed amount, like a car loan or mortgage.
Unless you make it so.
You make it so by establishing certain, absolute rules regarding credit cards, and following them.
Rule number one: If you cannot pay off the balance of a given credit card the month payment is due get rid of the credit card. Cut it up. Burn it. Shred it. Destroy it.
Now I know some people will respond to this with a rationale along the lines of: I can handle my credit cards. I don’t need to get rid of them.
Fine. Then stop reading right now because you are not ready and willing to be honest about your credit card debt, and because you are not you are wasting your time. If you could manage your credit card debt you would not be in debt right now.
Rule number two: Do not apply for new credit cards. Moving credit debt from one credit card to another is not paying off your debt. In fact, doing so may actually increase the debt you owe.
Rule number three: Determine how long it will take to pay off your debt and follow this schedule without exception. You may pay double the mothly amount required for six months and then decide you can skip a month of this practice.
You just increased your debt.
But getting back to paying off your debt. You need a plan to pay off your debt. A plan that begins in full next time.